There is no Greece

A Greek colleague of mine told me I have no right to have an opinion on Greece unless I lived there. I think its nonsense. I haven’t lived in countless other places and I still have an opinion on them. Nobody has lived on the Moon, but we all can have an opinion about it. By the same logic, most Greek who have not lived in Germany have no right to an opinion about it – they most obviously do. So I do have an opinion about Greece. And in my opinion, there is no Greece.

In a bizarre show of loss of touch with reality, the vast majority of the Greek, including their own government, believe they can say “OXI” to the rest of Europe. They decline all offers of help because they come with demands to demonstrate willingness to be helped and to do their share, and still want to remain a part of the EU and the Euro zone. The age-old truism that you can’t eat the cake and leave it whole does not seem to be able to “land” in Greece. But it will land, and it will be a very rough landing. As of last week, Greece simply ceased to exist. Having failed on its credit obligations, it has become a failed state – in line with other bankrupt countries like Zimbabwe and Sudan. Like the fathom image of the sun on your retina after you close your eyes, the Greek government and people are still there, but as the economy grinds to a halt and the institutions collapse they, too, will disappear.

As the country dissolves further and further and more and more services and parts of society cease to function, a torrent of refugees (there is no other word to describe it) already leaves Greece. For now, these have been largely the young, and even they are reluctant to leave, preferring to live on their parents couch off the pensions of their grandparents. As the reality of living in a failed state with no prospect of improvement in the coming decades will become clearer, all who are able to leave will leave. The real Grexit will be the mass migration of Greek who are capable of doing so. With the young and able leaving, the ones left behind are the sick and the elderly – which already triggers a downward spiral of an economic downfall and even higher migration rates.

The Greek economy has been sick for a while. Main cause are loans that were not covered by assets. Whether the Greek who took the loans or the Germans and the French who provided the money for the Greek banks to loan are to blame is by now rather irrelevant. Other countries have been able to overcome similar problems – Ireland, Cyprus and Iceland have all rebounded from a recent debt crisis. The ills of the Greek society are much deeper though and thus Greece, unable and (or?) unwilling to mend its ways, is rapidly disappearing. The Greek people are ill in the most literal sense of the word – Greece has the highest rates of obesity in Europe. What I find most astounding is that Greece has also the highest rates of smoking in the world. The adult Greek smokes an average of 3 000 cigarettes a year. A 5 to 6 BILLION Euro goes up in smoke in Greece every year – literally. If the Greek would quit smoking, they would have saved some 30 BILLION Euro since the start of the crisis in 2010. Talk about simple and efficient measures to help the economy – I’d say the EU should demand a ban on smoking as a condition to an emergency aid package.

It does not take a genius to see that the sick and ageing population, combined with an unprecedentedly low birth rate and mass-migration of the youth will lead to the disappearance of the Greek people within a couple of decades. Besides the human tragedy that envelops as we speak, this process is a unique opportunity. Greece, its economy (or lack of it), its demographics, its demise, are an illustration of what lies ahead for most of the rest of Southern Europe with Italy as the next in line. All the ingredients to repeat the Greek tragedy on a larger scale are present there. Greece is an opportunity to study ways to prevent or at least reduce the impact of the fall.

I doubt we will be able to learn the lessons from the Greek crisis. Which is sad, because its not only Italy that is next – it may very well be that the whole Euro zone, the EU and even all of Europe are bound to go down the same road. Worse of all – there are serious signs China is headed the same way. The Chinese economy is, like Greece, poisoned by irresponsible loans and is full of Potemkin villages. China has an ageing population of chain-smokers and, like the Greek, the Chinese view themselves as a cradle of civilization that must be if not admired then at least respected by the rest of the world. We might survive Greece disappearing and may even overcome Italy collapsing. But what are we going to do when China goes “boom”?

 

The Greek like to say they “invented” democracy and claim the rest of Europe should respect their democratic choice. They conveniently forget that in ancient Athens, only adult free male citizens were allowed to vote. Most significantly, citizens who failed to paid a debt were automatically stripped of their voting right (Atimia) and this disqualification was inheritable. The Greek should study their own history a little better before preaching about democracy. Next time a Greek says “democracy” – say “atimia”.

Greece – just another small European country in big trouble

[Disclaimer: This post contains no shocking news and concludes that there will be “more of the same”.]

I’ve been to Greece once, about 10 years ago. It was a short visit – all I had was a 7-hour layover in Athens, and I went to see the city rather than hang around in the airport. The brand new subway, built for the 2004 Summer Olympics took me to town, past huge stadiums built only a year or two before, especially for the Olympics. Abandoned and disused since, the stadiums were already overgrown with weeds. Once in Athens, I didn’t do much – walked around town, climbed a hill to a church and a ruin, lunched on bread and olives from a local supermarket and headed back. The Greek capital did not leave a good impression. I found it dirty, the roads were cratered, the buildings in terrible disrepair and I’ve never seen such shortage of attractive women. Add to that constant harassment by street venders trying to sell me illegal cigarettes and counterfeited perfumes, and you’ll understand why I was relieved to go back to the airport. Greece was painfully far adrift from the cradle of Western Civilization it once was supposed to be.

The entry of King Otto of Greece in Athens and his reception in front of the Thiseion temple, in 1833, a painting by Peter Von Hess (http://www.pinakothek.de/peter-von-hess)

As we all know, since my short visit (and totally unrelated to it) things have only been worse for Greece. Last weekend’s elections result has just thrown in an extra portion of uncertainty into the situation. Syriza, a militant alliance of radical left groups, has won on a populist promise to “end austerity”. The statements by Syriza leaders before and after the elections are, of course, rather contradictory (before: “[Syriza will demand to] write down on most of the nominal value of debt“; after: “We are not talking about writing off 50% of the nominal debt”). So what is going on there? And where will Greece (and the EU) go from here? The way I see it, there are 4 possible scenario’s:

1. What Greece wants
   The debts are forgiven (“written off”) and Greece is free to recover. Highly unlikely. The Greek have shown no intention to mend their ways. The rest of the EU is not bent on a repeat of the situation, having to save Greece again in 5 or 10 years. “Pardoning” Greece’s debt is politically unacceptable in the loaning countries (like Germany and the Netherlands) and will be met by similar demands by other bailed out countries (Spain, Portugal, Ireland). Such demands are clearly impossible to meet. Not an option.
2. What the (Northern) EU wants
   Greece paying its debts. Equally unlikely. By now it is clear that the Greek economy is simply unable to recover sufficiently to generate tax income that will allow the government to repay the current loans. The pace of reform has been virtually zero. Syriza promises a lot (an anti-corruption task force, “an end to both bureaucracy, corruption and tax immunity“) but these promises have been made by previous governments as well. There’s no sign or prospect of Greece’s economy becoming “Germanized”. And without drastic reforms, there’s simply no budget to pay back the loans. Won’t happen.
3. A creative solution
   Thinking out of the box and breaking taboo’s. Grexit is one such option. Again, unlikely. Greece has no intention of leaving the Eurozone. Grexit will deprive it from the only leverage it has – “help us or we will bring you down with us”. In plain words, we call it blackmailing, but its politics, so “using the available assets” is considered a more proper term. The EU has no legal means to force Greece to leave the Euro. And the fall-out will be too big for Grexit to be a real option. Other creative solutions are possible, but politicians are not really good in recognizing and applying them. Even less probable than the previous two scenario’s.
4. More of the same
   I recently learned that if weather forecast would simply state “tomorrow’s weather will be like today’s” it will be accurate in about 65% of the cases. The huge spending on meteorology improves the accuracy only marginally to 75% of the cases. My guess is that the same applies to economy. As a former boss of mine used to say: “The soup is being eaten cooler than it is served”. He meant that bold statements and stiff negotiations positions are usually watered down to match reality. In Greece’s case it will probably mean that:
   a) Syriza-led government will find it difficult to negotiate a significantly better deal
   b) The EU will have to write off some of the Greek debt (here a creative solution will be found – they will name it differently to avoid a scandal)
   c) Syriza’s populist promises of higher wages and pensions, expanding the number of government jobs and such are easy to make but impossible to fulfil.

So expect drama in front of the cameras but little dramatic results at the end. The pale reaction of the international stock exchange markets to the elections result is a clear indicator that not much is going to change. Is this good news? No. But its much less bad that it could be.

How football bankrupted Ukraine

Ukraine has been out of the headlines in the last week, toppled by Malaysia Airlines Flight 370. But after this weekend, Ukraine will be back on top of the news, following the Crimean referendum. Its not going to be pretty for Ukraine and the question everyone will be asking is – how did it get this far? Well, I say football is to blame. This is my version of what happened.

Suppose you have a house. Its a nice house, a big one, that you have inherited from your parents. But it’s an old house, with plenty of problems – the roof is leaking, insulation is non-existent, some windows are broken and the piping is rotten. Your house needs a total overhaul to be restored to its former glory. The problem is – you have just lost your job, your wife is sick and the children need money for new school books, so you’re not exactly swimming in cash.

What would you do? You do have an asset – your house. So a reasonable option would be to take a loan with the property as guarantee, to last you through the tough times and make the repairs before the roof caves in on you. This way, you will have a solid home, your children will benefit from good education, your wife will go to a good doctor and if all goes well, with the new job you will repay the small loan you took and get your family back on your feet.

There is, of course, another option. Mortgage your whole house and spend all the money you get on a huge one-time party, making only cosmetic repairs, so that the roof doesn’t leak into the champagne and caviar you serve your guests. Invite everyone – the boss who fired you, the contractor who “fixed” the leaking roof the last time, hell, invite all your old girlfriends, too – show them how successful you’ve become in life. Who cares that the party will be over and leave you with a huge hangover, a ruined house and a loan you can’t repay? Sell your grandma’s jewelry, too, while you’re at it – no expenses can be spared for a good party!

Unfortunately, the last option is what Ukraine has done when hosting the Euro 2012. Various reports say that the tournament has cost Ukraine 10 to 14 bn USD – four to six times the original estimate! What’s even worse, half the money wasn’t event spent on unnecessary infrastructure like lavish football stadiums – it was just stolen. Who remembers now that Ukrainian media seriously claimed that Ukraine’s road to the EU will start at Euro 2012?

Football alone was not the cause of the downfall of Ukraine. The financial crisis and widespread corruption have hit Ukrainian economy hard, eventually leading to the ousting of the government of Viktor Yanukovych (and a Russian invasion). But hosting the Euro 2012 tournament has undoubtedly made the problems worse.

Ukraine’s woes must be a warning sign to other “emerging” countries that waste their assets on prestige projects. I’m talking to you, Russia and Brazil – chopping the fruit garden around your house and selling your winter coal stock to finance an even bigger party won’t make it better.

The conclusion is obvious – hosting huge events like FIFA World Cups and Olympic Games is possible only when you already have the money, the infrastructure and the judicial system that can cope with such huge money flows. Otherwise, you will be left with a herd of white elephants and a huge debt millstone hanging around your neck, like Ukraine, or Greece. And the last word about the burden of Beijing 2008 Olympics on China’s economy has not been said yet, I’m afraid.